Q1 2025 Safehold Inc Earnings Call
Well, I guess we have to leave the tape.
Speaker Change: Good morning and welcome to Safehold's first quarter 2025 Earning Confidence Call.
If you need assistance during today's call, please press star zero
Speaker Change: If you'd like to ask a question, please press star one. That's star one to ask a question.
As a reminder, today's conference is being recorded
Speaker Change: At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, senior vice president and head of corporate finance. Please go ahead sir.
Speaker Change: Good morning everyone, thank you for joining us today for Safehold's earnings call. On the call today we have Jay Sugarman, Chairman and Chief Executive Officer, Brett Asnas, Chief Financial Officer, and Tim Doherty, Chief Investment Officer.
Pearse Hoffmann: This morning, we planned to walk through a presentation that details our first quarter 2025 results.
Pearse Hoffmann: The presentation can be found on our website at safeholdinc.com by clicking on the Investors link.
Pearse Hoffmann: There will be a replay of this conference call beginning at 2 p.m. Eastern time today. The dial-in for the replay is 877-481-4010, with a confirmation code of 52368.
Pearse Hoffmann: In order to accommodate all those who wish to ask questions, we ask the participants limit themselves to two questions during Q&A. If you'd like to ask additional questions, you may re-enter the queue.
Speaker Change: Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call which are not historical facts, may be forward looking.
Speaker Change: Safehold disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. Now with that, I'd like to turn it over to Chairman and CEO , Jay Sugarman, Jay.
Thanks, Kierson. Good morning to everyone joining us today.
Speaker Change: While many of the deals we hope to close in the first quarter were waylaid by market volatility, markets are beginning to adjust and we are finding ways to provide the capital our customers need to lock down their deals.
Speaker Change: Rates remain high relative to forward inflation expectations, but it's hard to predict when markets will fully stabilize, or when the rates backdrop will be more favorable.
Speaker Change: In the meantime, we're working closely with customers to find solutions to their needs and deploy capital that can represent attractive risk adjuster returns to Safehold.
Speaker Change: We have two goals in mind as we continue to build the business.
Speaker Change: Reach a scale that starts to unlock the full value of the business for shareholders and continue expanding the universe of customers who can benefit from the long-term, lower-cost capital and stability that a safehold ground needs can provide.
Speaker Change: We need to be aggressive and tireless in these efforts and believe the payoff will be well worth the significant investment of time and resources we are committing.
Brett Asnas: All right, let me turn it over to Brett to review the quarter and full year in more detail.
Brett Asnas: Thank you, Jay. Good morning, everyone. Let's begin on slide two.
Brett Asnas: 2025 has been a challenging environment for new deals as the combination of interest rate volatility and market uncertainty has reprised capital and slow decision making for our customers.
Brett Asnas: This impacted Q1 investment activity as several transactions we expected to close during the quarter were delayed, resulting in no new originations for the quarter.
Brett Asnas: That set our team remains highly engaged with both new and existing customers. The pace of signed L.O.I.'s has picked up and our pipeline is further along today than at the same point last year.
Brett Asnas: We have non-binding LOIs totaling approximately 386 million for potential commitments across 11 ground leases and four loans.
Brett Asnas: While certain of these transactions have closed in Q2, there could be no assurances that the rest of these transactions will close.
Brett Asnas: Credit metrics are strong at current base rates or expecting contractual returns in the low 7% range before fact during an CPI in Carrot, which we believe is highly compelling.
Brett Asnas: Six of the eleven ground leases under LOI are in the affordable housing space, continuing our momentum in that sector, which we expect to be a meaningful growth contributor moving forward.
Brett Asnas: We're working with 11 unique sponsors, nine of which are new to our program, which not only demonstrates the reach of our product, the votes well for our future business, as roughly 40% of our portfolio is repeat business.
Brett Asnas: At quarter end, the total portfolio was $6.8 billion. The UCA was estimated at $8.9 billion. GLTV was 52% and rent coverage was $3.5 [inaudible]
Brett Asnas: We enter the quarter with approximately 1.3 billion of liquidity, which is further supported by the potential available capacity in our joint venture.
Slide 3 provides a snapshot of our portfolio growth.
Brett Asnas: In the first quarter, we funded a total of 20 million, which consisted of 16 million of ground least fundings on pre-existing commitments that have a 6.7% economic yield, and 4 million related to our share of the lease hold loan fund, which earned interest at a rate of so per plus 386 basis points.
Brett Asnas: Our ground lease portfolio has 147 assets and has grown 20 times by both book value and estimated unrealized capital appreciation since our IPO.
Brett Asnas: We have 85 multifamily ground leases in the portfolio and have increased our exposure from 8% by count at IPO to 58% today.
Brett Asnas: In total, the unrealized capital appreciation portfolio is comprised of approximately 36 million square feet of institutional quality commercial real estate, consisting of approximately 20,000 multi-family units
Brett Asnas: 12.5 million square feet of office, over 5,000 hotel keys, and two million square feet of life science and other property types.
Brett Asnas: Continuing on slide 4, let me detail our quarterly earnings results.
Brett Asnas: For the first quarter, gap revenue was $97.7 million, net income was $29.4 million, and earnings per share was $0.41 cents.
Brett Asnas: The decline in gap earnings year-over-year was primarily due to an increase in other expense, driven by a non-recurring 1.9 million loss on a preferred equity investment in a Washington D.C. office leasehold interest.
Brett Asnas: The leasehold was being marketed for sale with a portion of property taxes under appeal.
Brett Asnas: We advance funds to cover those taxes as we believe any unpaid amounts would have been an overhang on the sale process.
Brett Asnas: The leaseholds successfully changed hands recently and we have a new tenant in place with a strong track record and fresh equity committed to the building.
Speaker Change: Safehold will provide additional financing for building upgrades and leasing and in return we'll receive equity participation in the lease hold should it outperform.
Speaker Change: We believe this solution is a long-term positive for the asset. A portion of the taxes paid may be recovered in the future, but given our lack of visibility and confidence in the appeal process, we decided to write off our preferred equity investment.
Excluding this one time non-recurring loss [inaudible]
Speaker Change: Q1 earnings per share increased slightly year over year, driven by higher net earnings on investment fundings and percentage rent, offset by an increase in our non-cash general provision, primarily driven by higher GLTBs, and lower earnings from equity-methed investments.
Primarily due to repayments in the leasehold loan fund.
On slide five, we detail our portfolios yields.
Speaker Change: For Gap Earnings, the portfolio currently earns a 3.7% cash yield and a 5.4% annualized yield.
Speaker Change: Annualized Deal includes non-cast adjustments within rent, depreciation and amortization which is primarily from accounting methodology on IPO assets.
Speaker Change: But excludes all future contractual variable rent, such as fair market value resets, percentage rent, or CPI based escalators, which are all significant economic drivers
Speaker Change: On an economic basis, the portfolio generates a 5.8% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments.
Speaker Change: This economic yield has additional upside, including periodic CPI lookbacks, which we have in 83% of our ground leases.
Speaker Change: Using the Federal Reserve's current long-term break-even inflation rate of 2.2%, the 5.8% economic yield increases to a 5.9% inflation adjusted yield.
Speaker Change: That 5.9% inflation adjusted yield then increases to 7.4% after layering in an estimate for unrealized capital appreciation using Safeholds 84% ownership interest in carrot at its most recent 2 billion
Speaker Change: We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.
Speaker Change: Turning to slide six, we highlight the diversification of our portfolio by location and underlying property type.
Speaker Change: Our top 10 markets by Gross Book Value are called out on the right, representing approximately 66% of the portfolio.
Speaker Change: We include key metrics such as rent coverage and GLTV for each of these markets and we have additional detail at the bottom of the page by region and property type.
Speaker Change: Portfolio GLTV, which is based on annual asset appraisals from CBRE, increased quarter over quarter from 49% to 52%.
Speaker Change: This increase was not surprising as Q1 is our largest office revaluation quarter with approximately two-thirds of the office portfolio getting re-apprised.
Speaker Change: We target low attachment points in our ground leases to avoid being impacted by these temporary fluctuations.
Speaker Change: Although property appraisals decline, rent coverage on the portfolio was unchanged quarter over quarter at 3.5 times.
Speaker Change: We continue to believe that investing in well-located institutional quality ground leases in the top 30 markets that have attractive, risk-adjusted returns will benefit the company and its stakeholders over long periods of time.
Speaker Change: Lastly, on Slide 7, we provide an overview of our capital structure.
Speaker Change: At your end, we had approximately 4.7 billion of debt comprised of 2.2 billion of unsecured notes, 1.5 billion of non-recourse secured debt.
Speaker Change: 0.7 billion drawn on our unsecured revolver and 0.3 billion of our pro-rata share of debt on ground leases which we own and join ventures.
Speaker Change: Our weighted average debt maturity is approximately 19 years and we have no corporate maturities due until 2027.
Speaker Change: At quarter end, we had approximately 1.3 billion of cash and credit facility availability.
Speaker Change: We are rated A3 with stable outlook by Moody's, A- with stable outlook by Fitch, and Triple B plus with positive outlook by S&T.
Speaker Change: We have benefited from an active hedging strategy and remain well hedged on our limited floating rebar rings.
Speaker Change: Of the 712 million revolver balance outstanding, 500 million is swapped to fix sofa at 3% through April , 2028.
Speaker Change: We receive swap payments on a current cash basis each month, and for the first quarter that produced cash interest savings of approximately 1.7 million that flowed through the P&L.
Speaker Change: We also have 250 million of long-term treasury locks at a weighted average rate of approximately 4.0%, and current game position of approximately 30 million.
Speaker Change: Of this 250 million, 100 million notional was unwound in April and crystallized at a 13 million cash gain, and the remaining 150 million notional is active in outstanding with mark to mark the gain of approximately 17 million.
Speaker Change: These Treasury locks are marked to market instruments currently recognized on the balance sheet, but not the PNL.
Speaker Change: They can be unwound for cash at any point through their designated term. However, only when they are applied to long-term debt would they then be recognized in our P&L overtime.
Speaker Change: We are levered 1.96 times on a total debt to equity basis, which was flat versus last quarter. The effective interest rate on permanent debt is 4.2%, and the portfolio's cash interest rate on permanent debt is 3.8%.
Speaker Change: So to conclude, despite a difficult market, the team is finding success sourcing new deals and expanding our customer base.
Speaker Change: We expect these efforts to translate into increasing investment activity in the near term, and if markets remain choppy or there is a more significant downturn, we believe owning a diversified pool of brown leases is an attractive place to be.
Speaker Change: Growth has always been a driving force in our valuation. But at the current share price, we think it's worth highlighting what investors own because the discount to what we believe is fair value has grown so large.
Speaker Change: We have a balance sheet with no near-term majorities, valuable in-place hedges, and significantly below market debt locked in for 19 years.
Speaker Change: At Market Discount Rates, we believe there's approximately $10 or more of per share value in this stat on our balance sheet alone.
Speaker Change: On the asset side, we own a diverse pool of high-grade credit instruments, call protected and contractually compounding.
Speaker Change: We also typically own 8-9 free options on CPI in our leases which will increase returns and protect value should inflation remain sticky plus a free option on the future underlying real estate currently appraised at nearly 9 billion which we believe over time will return many multiples of our invested basis
Speaker Change: Part of the challenge in operating in a less traditional sector in the public market is there are no direct comps and investors typically have less experience with ground leases than they do other asset classes.
Speaker Change: At the current share price, we believe the portfolio is a misprice asset.
Speaker Change: While scaling the business remains our top priority, we are actively evaluating opportunities to take advantage of what we believe is a public versus private valuation disconnect on the existing portfolio. And we look forward to keeping the market updated on our progress.
And with that, let me turn it back to Jay
Jay Sugarman: Thanks, Brett. Let's go ahead and open it up for questions.
Speaker Change: Thank you. Ladies and gentlemen, to ask a question, please press star one at this time. We will take as many questions as time permits.
Speaker Change: Once again, please press star one to ask a question, and we will pause a moment to assemble the roster.
Thank you.
Speaker Change: Our first question is coming from Ronald Kamdem with Morgan Stanley . Your line is lies.
Speaker Change: Hey, just two quick questions. You know, I think you talked about sort of the pipeline a little bit here on the non-biting allies. Just wondering if you could give a little bit more color, just on the sponsors, sort of the markets.
Speaker Change: And just what your expectations on the ability to sort of close this and in what time frame?
Sure. Hey, it's Tim.
Speaker Change: As you can see, this is a very robust pipeline here with the 11 deals and we say that the majority are in multi-family family.
Speaker Change: That includes existing deals that were helping recap construction deals on market rate.
Speaker Change: As well as affordable, you know, as you heard from Brett, you know, a lot of new clients here also repeats which we, you know, see a lot of from our Justing Portfolio location wise also very diverse. We have West Coast, Southeast, Northeast.
Speaker Change: Midwest all in this pipeline. So, you know, from our standpoint, it's a great, great pipeline and it shows that the diversity of deals we can close on.
Speaker Change: Great, and then my quick follow-up is just on the difference between the ground lease versus the leasehold and loan value, just maybe talk us through the benefits of that to you guys as well as the borrowers, and how much capacity do you have to do these sort of leasehold loan when you're doing the ground lease? Thanks.
Hey Ron, thanks for the question.
Speaker Change: As you know, we've selectively used Lisa Lunds in the past. We have relatively little dollars outstanding right now, but
Speaker Change: We think it can be a useful tool in the markets are volatile and when we see an opportunity or certainty can win deals it's certainly an arrow in our quiver . . .
Speaker Change: So we think it's a way to kickstart some transactions that are either sitting on the sidelines because they just can't line everything up.
Speaker Change: That's a great place for us to step in. We're going to keep it to a small percentage of the balance sheet obviously but we think it's a tool that our customers definitely benefit from knowing they've got to deal lockdown as opposed to having to watch the market every day.
Great, that's it for me, thanks [inaudible]
Thank you.
Caitlin Burrows: Our next question is coming from Caitlin Burrows with Goldman Sachs, Your Line Is Life
Caitlin Burrows: Hi there. Maybe just a quick follow up on the first part of Ron's question on the LLI deals. It sounds like some of those may have already closed so I was wondering if you could quantify that and then give us an idea for expected timing and to the extent that you don't want to comment on these exact deals. I guess could you give some color around by the time a property generally enters the LLI stage how long it could take to actually close. Thanks.
Speaker Change: I don't want to take the last one first. Time frame ranges on a construction deal versus a recap deal of the construction deals, just take more time.
Speaker Change: To put things together, and then on the recap deals, those are largely fairly quick, but our pipeline, we what we expect is
Speaker Change: The majority of all these deals will close this year, but because of the timing with the construction versus stabilized deals, it will vary over the time frame of the quarter. But again, we feel great about what the build up of this pipeline is.
Speaker Change: Okay, got it. And it sounds like there's no comment on what has already been agreed upon or closed.
Speaker Change: Yeah, I mean, the earliest deals are starting to close, so we're hopeful that the momentum continues.
Caitlin Burrows: Okay, and then just at the end there you guys mentioned the public versus private market disconnect, so wondering if you could comment on that a little bit more are you suggesting that you would consider potentially selling a ground lease or more to prove value or something else?
Sure, Caitlin, it's Brett.
Caitlin Burrows: We mentioned on our last earnings call for our 2025 goals.
Caitlin Burrows: Capitol Recycling was near the top of the list, we want to...
Caitlin Burrows: Make sure that we are standing behind the stock and making sure that we are closing the gap and we certainly believe that we are trading at a discount and we start thinking about the opportunity set.
Caitlin Burrows: of what we have within the existing portfolio, whether that mean selling assets.
Friends, Finding Joint Venture Partners, etc.
Caitlin Burrows: You know, we're underway in processes to figure out how to create the best execution so that we can continue to deploy capital as well as stand behind the stock and we'll continue to update the market accordingly as those processes unfold.
Golett, thanks [inaudible]
Speaker Change: Thank you. Our next question is coming from Haendel St. Juste with Mizzouville, your line is life.
Speaker Change: Hi there. I wanted to confirm whether everything in the LOI that are in the non-binding LOIs were related to multi-family or affordable housing.
Speaker Change: As I mentioned, the majority of it is in multi-family and it's a good mix of market rate construction, market rate recap as well as affordable and we do have a hotel transaction as well but the majority is still multi-family.
Got it. And as you evaluate your-
Speaker Change: Haendel, I think, as I said in my opening remarks, the goal here is to scale and note.
Speaker Change: Right now where the scarcity of deals makes it more likely we're going to try to keep stuff for ourselves.
Speaker Change: But certainly as deal flow ramps up and if our cost of capital isn't where we'd like it to be, that's an alternative we always consider.
Speaker Change: As potentially one we can use, as Brett said, we have a couple processes underway just to think about other sources of capital that could be more creative to the company but nothing to report right now.
Speaker Change: And just one more here, and maybe it's a bit more a big picture in nature, but I understand the volatility with interest rates in the past and out of the volatility with tariffs and the trade war. This has really impacted the acquisition that said and the capital deployment opportunity.
Speaker Change: I think it's fair to say that the volatile will persist here for a little bit. I guess what are some of the deals you're looking to structure and how are those maybe different than maybe what we're approaching in the past.
Speaker Change: This is Tim again. I would say that there has been some volatility, of course. I think the range of the volatility has tightened. If you look back over the last 24 months.
Speaker Change: But with the hot, we pay attention a lot to the 30-year treasury, the highs and the lows [inaudible]
Speaker Change: From, you know, six to 24 months back now with, you know, six months back only, that allowed sponsors to start to have a clear view of what their long-term capital costs are. So I think that's why you're also seeing the pipeline.
Speaker Change: Build up your sponsors and are now able to make decisions on transactions.
Sure, the latest noise is tariffs. [inaudible]
Speaker Change: which does impact transactions. You know, we use a construction for an example. So deals that start to pencil, you know, some of those.
Speaker Change: Probably had to go pencils down, but look at in the high. Bye.
Speaker Change: Quality Markets with good growth and lower supply than others, which there's good examples of around the country, even with tariffs, there's transactions can start to occur, which you're seeing come through our pipeline. One thing we've seen that I think is a little bit new is...
Speaker Change: And not just have a floating spread all the way up till they close. So that's been one response we've seen from customers is they're looking for certainty, they need to put the stacks together and at least with our piece we can give them a little bit more certainty that has been helpful. Thank you.
Got it, thank you
Mitch Germain: Thank you. Our next question is coming from Mitch Germain with Citizens Capital Markets. Your life is life.
Mitch Germain: Thank you. I wanted to circle back about some of the discussion around joint venture partners and obviously
Speaker Change: You can lock in some new capital for deals, but I think [inaudible]
Speaker Change: When Brett had suggested joint ventures as a way to unlock value of the portfolio, I'm assuming you would be contributing assets to existing properties to adventures, that the way to think about creating some price discovery around the portfolio itself. [inaudible]
Speaker Change: Yeah, Mitchell, exactly. I think from our perspective, both from a...
Speaker Change: Where do ground leases trade? Yeah.
Speaker Change: They come for sale very often, right? It's really episodic and what we're going out and doing is creating them, so...
Speaker Change: Having a scarce product and one that is very low beta, especially in a chopper market, should be an attractive proposition for folks.
Speaker Change: To Jay and Tim's point, we certainly want to scale and grow, but in thinking about activity moving forward throughout the course of the year in terms of our own capital structure and what we can do to continue to tighten costs. [inaudible]
Looking for the right partners. [inaudible]
Whether that be direct sales or JVs? [inaudible]
Are on the table in terms of Go Forward Capital. Hello.
Speaker Change: If you remember, we still have our joint venture with our sovereign wealth partner. So we have capital tools or other tools in the toolkit here to ensure that
Speaker Change: You know, participate at the right levels, but we certainly want to be doing as many deals as we can in this rate environment, but we certainly have to look at our cost of capital as well so.
Speaker Change: It's been a while since I think you got a couple of quarters ago cleaned up your carrots, or at least the original trotch that you sold, has been any consideration to use that instrument as a
Speaker Change: Price Discovery tool as well, or given the decline in the unrealized appreciation pool, is that kind of off the table right now?
Speaker Change: I wouldn't say it's off the table, but it's a much better story when that UCA numbers grow
Speaker Change: I think you see that the pipeline starts to come through. I think we can be just a better story for investors. We still...
Speaker Change: I have a lot of thoughts about how to use that to create capital, but I think given ourselves the time through the end of the year to really pick a spot when the story is strongest, this probably the wisest thing to do.
Great. Thank you.
Speaker Change: Thank you. Our next question is coming from Harsh Hemnani with Green Streets. Your line is life.
Thank you.
Speaker Change: In the closed deals between the four under aloe wide bits, Aliso alone versus the seven without Aliso alone. I'm trying to understand the certainty that comes with that Aliso alone.
Speaker Change: Makes it easier to close, versus maybe adjust the countless three.
Speaker Change: Sure, yeah, as you see, four of the 11 have the police hold on, so minority of those transactions.
Speaker Change: Obviously, when we have the loan as well as the groundless, there's more certainty because we're more control of the capital stack.
Speaker Change: So those deals do have a higher level of certainty. However, our experience on LOIs is the vast majority of these will close. It's just timing to get those done, whether it be you know.
Speaker Change: The Capitol, the LPGP, or the Lisa Lender taking time. So we do feel comfortable with the certainty of this pipeline closing over the year.
Speaker Change: But as we said, the lease hold loans to provide a little bit more certainty than the other transactions.
Pearse Hoffmann: As you know, when we prop it ground these, that customer still has to go out and get...
Speaker Change: Typically, Eliseo Lone and their LP capital lined up and all three kind of move around. You've got multiple parties at the table.
Speaker Change: Wherever we see a chance to narrow that window is an opportunity to think through with the customer what's the best way to move forward. So, again, selectively using it but it is a tool that gives them the ability to move forward. That's a good tool to ask.
Speaker Change: and then maybe taking a step back on the pipeline, right? Okay.
Speaker Change: What's under Alive, over 250 million on Crown Leases? It's already more than what...
Originations Moore in 2024. So is this a you?
Speaker Change: Maybe two part question, the first is, how has the pipeline involved maybe after all the wallet and
Speaker Change: And then, given what you're seeing on the ground today, do you think this is sort of a sign of a recovery in the ground lease market or do you feel like you need more time to be confident in that?
Speaker Change: As I mentioned prior, the volatility in rates is less so than it was over the previous couple years, which has again helped people make decisions.
Speaker Change: Longer Term, whether that be mostly on the construction and acquisition side, obviously what the decisions are and recaps as well. So, yes, as you mentioned.
Speaker Change: Our pipeline now, the total on the growlings is more than we originated last year. Again, this certainty becoming a little bit more clear, obviously there's still some volatility out there, but it is a good sign, that things.
Speaker Change: Have reached a point where sponsors can make these decisions and therefore our pipeline and transaction flow will increase.
Thank you.
Speaker Change: Thank you. Our next question is coming from Stephen Kim with Truist. Your line is life.
Stephen Kim: Thank you. Good morning. Just going back to the topic of potential new JV partners. I know the current one is you know more geared for a larger scale deal. Just what is the level of interest you're seeing for potential new partners and
Speaker Change: Would this be more for new deals going forward or past deals? [inaudible]
Brett Asnas: Yeah, as Brett said, you know, the process on the, trying to use the existing portfolio is one, you know, we've been thinking about, I think on the new transactions, if it's of scale and size, certainly our existing partners are, is our go-to.
Speaker Change: and we have shown them some very, very large transactions to really see where their return parameters are these days, I will say.
It's hard to... It's hard to...
Speaker Change: Talk to people when they can deploy billions of dollars into...
Speaker Change: Data Centers and other areas about our, you know, very safe, very long-term, very attractive returns, but, you know, at obviously lower nominal return levels. So, we're saving our firepower with them for the largest deals.
and are there any type of...
Speaker Change: Restrictions on, could have you disheveled some assets your carat size would decrease or do you have any kind of restrictions that would prohibit you from falling down assets?
So, there's no restrictions, I think again, when...
For us, we certainly believe. Thank you.
That these assets are quite valuable, but the...
Speaker Change: Contractual compounding cash flow streams but the inflation strips that we have in each of these as well as to your point, the the UCA, the value that sits above our groundly so. Thank you.
Speaker Change: We want to be thoughtful about the opportunity set there, both in what the give-and-take is near-term as well as what the ending outcomes could be longer-term and there's always trade-offs.
Speaker Change: And we want to make sure that we are creating value for our stakeholders that can come in different forms. And as I mentioned, those thought processes as well as
Speaker Change: As well as endeavors are along the way right now and we'll update the market as we have more detail.
Okay, thank you [inaudible]
and Brett Asnas. Thank you.
Speaker Change: Thank you. Our next question is coming from Rich Anderson with Wedbush Securities. Your line is
Sorry Rich, you may be on mute sir
Speaker Change: I've had, thank you, one day I'll get this figured out. So, dovetailing off of a previous observation or question, you know, the 273 in L.O.I. isn't, to me, it's a good number and we talked about how that compares with that versus last year.
Speaker Change: I'm wondering why you're not sounding more sort of optimistic about...
Speaker Change: You know, the progression of 2025 in light of the fact that that's, you know, that not certainty of close but, you know, good chance a lot of that will close. Why not a little bit more, you know, a
Speaker Change: A great, you know, beginning of the year here going to Q2, you know, so I guess I, I guess I need to just change my, the tone of the answer, but no, look, the two, the two, seven is a, is a great number, the diversity of the, you know, I mentioned, I guess I should have sounded a little more upset about the diversity of the sponsorship and the location, the aspect classes. So, you know, I, I, I, I, I, I, I,
Speaker Change: So, I guess, you know, I just need to add a little more emphasis on the end of my sense of variedness I think what you're hearing, Richard, these guys are in the trenches every day and we've been left at the altar a couple times on deals we thought were right at the finish line and that sort of breaks your heart for a little bit and you've got to get back on the horse and go out there again and do it [inaudible]
Speaker Change: But I'm pleased that the persistence is starting to pay off but...
Speaker Change: This is not a great market in terms of customers having clarity. We're seeing that across the board.
Speaker Change: You've seen what's happened and CNBS spreads blow out then they come back in and then they blow out again. So everybody's trying to grapple with the variables and figure out what should I do and when should I do it and you know that's a harder. You know what I'm saying?
Speaker Change: Harder market for our guys to really get people to sign on the dotted line and close their deals.
Speaker Change: And again, we're only one part of their capital stack So I think you're hearing just a little bit of the frustration that our customers want to do business with us We want to do business with them, but unless we can control the entire stack which we sometimes can but rarely can [inaudible]
Speaker Change: It's really hard to get deals done in a market where things change overnight so hopefully we're moving into a more stable period where you know it's just our our solution versus other solutions which is a place we like to to compete. Thank you.
Speaker Change: What we can't compete with is external factors and geopolitical and political factors that move around so much that freezes the market and we're still not seeing
Speaker Change: New Acquisition Activity Pickup to the pace we would hope. You're seeing Refi start to kick in, even some new development, but I don't think we're anywhere near sort of a stabilized market.
Yeah, and I can appreciate the heartbreaking [inaudible]
You know, component to the behind the scenes, but...
Speaker Change: Jay, maybe you can comment, you know, when you guys were doing deals, you know, in the billions per year, you know, what was the negotiating sort of different than like in terms of
Speaker Change: Finding versus non-binding LOIs. I mean, how has the market shifted in favor of potential customers today versus when you were kind of a little bit more in the driver's seat to get deals done?
Speaker Change: Yeah, I love Tim answer because he's on the ground every day, but here's my just 30,000 foot view is when customers think the feds about to raise rates they want to lock in long-term capital
Speaker Change: Markets think that the Fed's going to lower rates. They're more hesitant to lock in long-term capital. So, we're going to develop rhythm with our customers to help them navigate these kind of markets. We're going to develop rhythm with our customers to help them navigate these kind of markets.
Speaker Change: A lot of it is just how and when do they want to lock in what we think is a very beneficial long-term
Speaker Change: And, you know, when we were doing billions, it was a sort of double barrel. It was a better solution and they were worried the world was going to get much worse.
And so, I think stability helps us. [inaudible]
across the board. Jordan.
Speaker Change: I don't know what the Fed's going to do today, but the presumption is tariffs are going to have an impact and customers are starting to go, hey maybe I should just lock in right now [inaudible]
Speaker Change: So I think there's a lot of variables outside our control but our goal is just to line up against their alternatives and say ours is better. You should really consider it and the more shots we get at that conversation the better we're going to do.
Speaker Change: Yeah, Matt, I can be sure of them. Sorry.
So I'll just say that, look, I think the...
Speaker Change: The consistency of our capital is also ringing true to the clients, right? Every time they've called us over about eight years, we've been in a similar position in terms of what spread we are to the cost of...
Speaker Change: of the indexes, so that certainty has helped a lot. As you can see with the repeat sponsors and even now with the growing list of new sponsors as well. So I think that's an important add on.
Caitlin Burrows: Okay, great. And last for me, to Brett, what's the conversation like with S&P in terms of potentially getting them over the hump with the other two? I'm just curious that that's something that's, you know, on the radar screen, I'm sure it is, you know, at some point down the road. Thanks.
Brett Asnas: Richard, I certainly think that the momentum we had...
over the last.
12 to 18 months with the other agencies of the U.S.
Brett Asnas: Has helped people realize that, you know, this is a solid single-aid company. I think gets in P, as you know.
Brett Asnas: The engagement with them came further along. We got the rating public late last year. So, you know, we're in that positive outlook review period. We have an annual review coming up.
Brett Asnas: But, you know, over the course of 2025, we're going to continue to have dialogue with them, you know, typically these processes take [inaudible]
Brett Asnas: 18 to 24 months, some a little less, some a little longer. But for us, you know, we keep, you know, foot to the pedal on, you know, this is a very safe asset class.
We're capitalizing in a very prudent way. Bye.
Brett Asnas: and if we continue to find ways to deploy and originate. Thank you very much.
Brett Asnas: For New Deals, as well as make the spreads and margins that we desire and that's through, you know, thoughtful rate moves and hedging as well.
Brett Asnas: That, yeah, steady as she goes. So we're having dialogue with them and our hope is to get that third single left.
Okay, great. Thanks very much.
Thank you, Mr. Hoffmann, we currently have no further questions [inaudible]
Pearse Hoffmann: Thank you. If you do have additional questions, please feel free to contact me directly. Operator, would you please give the conference call replay instructions once again?
Yes, sir.
Speaker Change: Ladies and gentlemen, the dial-in for the replay is 877-481-4010, with the confirmation code of 52368
Speaker Change: This concludes today's call. You may disconnect at this time, and we thank you for your participation.